Am I obligated to send items to original buyer? Or can I refund and sell to 2nd person?

I don't know if you're obligated to complete the transaction, but be aware that the refunded money may end up being "held pending" on the buyers end. On top of them being frustrated with you canceling on them, they may also be frustrated at having to wait to receive their funds back from paypal. You're running the risk of receiving a negative feedback from them, which I think they're allowed to leave bc they already sent funds. Just some things to think about.